Spas and Recession
by Susie Ellis
SpaFinder Insider
This morning I read the sad news that Spa Sydell, with six locations in Atlanta, is filing for Chapter 11 bankruptcy. They have been in business for 25 years. This is just one week after I learned that Iatria spa in North Carolina is closing its three locations and filing Chapter 7. They started their business 10 years ago.
Heartbreaking – yet not particularly surprising given the current economic climate. In fact, I am sure that we will be seeing more spas closing. Frankly, I am surprised that we haven’t seen more already. I think it speaks to the fact that these businesses likely did everything they could to try and weather the recession, but at some point they had to pull the plug. 
While I know there are many people who will participate in these losses – the landlords because the spas can’t pay their rent, lenders who lent money in good faith, product companies who won’t get paid, as well as some consumers who hold their unused gift certificates – I think it is likely that those who will suffer the most are the proprietors of those businesses. They will probably lose everything personally and professionally and have to start over.
What I don’t think many people understand is how difficult it is to run a day spa business – in the U.S. especially – because the profit margins are razor thin due to high labor costs.
Most people who own and run day spas do so because they are passionate about spas. Often, these owners are care givers themselves who love nurturing their clients, and sometimes business skills are secondary.
In addition, expansion is always a slippery slope; running one spa isn’t easy but managing multiple spas doesn’t usually result in economies of scale -in fact, it often makes operations more difficult because the owner can’t be in all locations at the same time.
Industry numbers show that many day spas are barely profitable, some only seeing 5% – 10% profit in a good year and much less than that during negative business climates. It is truly a labor of love for many.
I thought I would share some of what I have learned over the years about the day spa business and invite you to share your thoughts and knowledge as well. Perhaps together – both consumers and spa industry professionals – we can better understand what is happening, and in some small way make the transition that much easier for those affected.
- Day spas have the smallest profit margins of all spas and so are more vulnerable to a downturn in the economy than are hotel, resort or medical spas.
- Labor costs are the main culprit. Most spas find that they need to pay more than 50% of their revenue in labor costs.
- In my opinion one change that would take costs down is for the entire industry to adopt the European model where all staff are “dually licensed” – that means the therapist can do both massages and facials. The result is much more flexibility in scheduling, more career opportunities for staff, and ultimately lower costs for the spa.
- Summer is a slow season for spa-going so businesses struggling will have a hard time making it through. Usually business picks up in the fall.
- Another challenge facing day spas this year is that resort and hotel spas have become more aggressive in building their local clientele thus increasing competition.
- When a spa closes, other spas sometimes offer to accept outstanding gift certificates from the spa closing in an effort to help the industry through the transition and of course to hopefully gain a new client. When this happens, it is a great plus.
- Allowing outstanding gift certificates to be used to purchase product at the spa closing is one way to satisfy some of the customers.
- During a tough economy, consumers would be wise to be careful about purchasing series of treatments where you pay up front (six massages for $500) or gift certificates in large amounts ($1,000, etc.). Purchasing a smaller denomination gift certificate ($100 or so) which the recipient is likely to use soon is less risky.
- While spas are not “recession-proof” they have done better than many other businesses because one driver that increases demand is stress – and people are more stressed than ever.
- This is a good time to discourage additional spa openings. (Unless you are in one of the few areas where there is vibrant growth – Brazil for example.)
It is my hope that our industry will do better than most in navigating through this…and at the end we will all be strengthened by the challenges. We may, in fact, end up with some helpful adaptations!
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Follow me on Twitter http://twitter.com/susieellis
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If you wish to be put on a list that automatically sends my blog posts to your email, just let dulcy.gregory@spafinder.com know and she will add you to that list. Thanks so much!
Really good post, Susie. It is heartbreaking to see these spas having to file for Chapter 11 or closing permanently. But on one hand it does create an opportunity for the other spas in the area to be servants of new customers like you mention with the gift certificates.
And I think your point about the general mindset of the proprietors of day spas is right on the money. It's about passion and care giving. These are people persons who often have a servant heart.
I imagine that we will see a pairing back from those running multiple day spa locations during this time, but like you write, stress increases and people recognize the value of a spa treatment. Spa owners are creative, I believe a majority of them will find ways to deal with the difficulties the economy brings and survive.
This is a really good post, Susie. I've seen that spas have been hurting recently since most of them will take you on a day's notice or less when you used to have to book at least 3-7 days in advance.
Another important aspect each spa needs to consider is their customer service. I recently had a terrible experience at JW Salon & Spa in Savannah, GA that cost them my future business. Their customer service was less than acceptable and they did very little to ensure my happiness that day. I sent them an unhappy email and they have yet to acknowledge it.
The assumption that they will get by without business like mine is what will put them on the fast track to bankruptcy. People go to spas for special treatment and if they don't feel 100% special, they'll go elsewhere. There are plenty other spas to choose from!
Hi Susie,
So sad to hear about Spa Sydell. She is such a lovely southern belle, and really was quite gracious. She made a strong impact on so many people in her area.
Like you, I believe there will be many more day spa closings. So many opened without strong business plans and as we all know, the profit margins are so very tight. The time is now to change the paradigm of day spa: what it really means and what it really delivers. I am currently working on a project that is 'future oriented' to support a cross-section of demographics. I look forward to sharing more as the project progresses.
Be well and as always, wishing everyone Spa Success!
Alison
Hello S,
thanks for this great post!
I don't know when spa owners are going to stop the current compensation structure. If spas don't change the way they compensate the team more and more spas will close. the industry has to change… they can't keep paying 50% commission and expect to stay business. We have introduced a compensation plan that pays the team their true worth and allows the owners to increase their bottom line. its called the "Volume Per Guests" compensation plan, we offer a free demo for spa owners, simply go to InSPArationManagement.com sign up and save your business!
Chaos or crisis can be thought of as opportunity disguised as loss. I know what that feels like, both personally and professionally. We all do. I think what is needed now – more than adaptations or limitations on business as usual – is a reevaluation of what role spas have played (and could play) in our culture; and a re-examination of why people work in and go to spas. Not for marketing or business purposes but for our souls!
This calls us to examine our underlying values, our world views, and to see if what we do (through spa in this case) is really meeting our needs and those of others in a way that respects the source of our livelihood, the planet itself (including all things sustained by it).
We'll need to hold the paradox of thinking big and thinking small. In the latter respect, spas could both support and inspire sustainable local communities. Any spa that is growing beyond and outside it's local community and not engaging that community fully is not in service.
I don't think it is a question of how much you pay your staff or what you do to entice customers but how much everyone really feels valued and involved. If we were to think of spa as a form of culture not as an industry, that might help us make the shift.
If this resonates with you, I'd like to invite you to visit my blog http://www.VisionSpaRetreat.com and brainstorm with me!
As a spa owner I have to agree that these are difficult times. We have been in business for just over four years and usually we grew 15% to 20 % per year. Now we have leveled off, but at least we are not declining. The area you are in certainly matters and we are glad to be in our little bubble in North California. We have always paid what we felt was as much as possible and which is around 35%. Having employees can be wonderful, and it can be difficult. The costs of doing business as well as still paying well even when we are discounting to get customers to come in can be a very tricky balancing game with a thin profit margin. Truly it is about being her to provide the community a service and employment. Hopefully the good morals will help us weather these rough times. Keep on networking.
I was talking to a spa manager in Sonoma who said that she's been lucky in the recession– her spa has actually done really well because people are going on mini-vacations that they can afford instead of going on the big ones they can't… but it's location location location!
lauren, http://www.innerrewards.com/localguides/sonoma
I am responding to the comment regarding the European method of hiring dual-licensed therapists (those who can perform both massage and skin care) to cut down on spa costs. As the executive director of a national association whose members are massage and skin care therapists, we are definitely seeing a rise in the number of dual-licensed therapists. Not only does this make sense from the spa's perspective, it also makes the therapist more hireable and able to offer services to more clients, which makes both the spa and the therapist more money. It's a win-win situation for both.
Upselling has been used successfully in every industry I can think of. Remember the phrase, " Would you like fries with that"? My daughter is a massage therapist in Arkansas. She offers the upsell of Inch Loss with massage. If you would like to know more about it, email me.
shack1959@att.net
All hope is not lost. My spa is still growing (we are up almost 15% this year) and hiring(4 full-timers in the last two months) and I am opening at least 2 new locations (both will be opened by Mother's Day 2010).
And I am an owner/operator (esthetician) who came to the US in 1996 with $50. We have recently been invited to become a Founding "Seed Spa" member of the Green Spa Network (but this information will not be made public until November 1st, 2009). There is always something new and exciting going on around here and I refuse to rest on my laurels and past awards.
It is a very sad time for all of the people out of work and the businesses that have to close.